I have a column coming out later today on sentiment and speculative excesses. Its an area that many investors have a hard time finessing through; There is a tendency to want to "be a contrarian." But be a usccessful contrarian means more than merely go against the crowd.

Why? It is the Crowd, after all, who takes markets higher. Hence the expression, "Don’t fight the Tape." That translates as go with crowd.

The value of the contrarian play is to indentify when the
crowd goes postal. Its only when they become over-stimulated, that the line between exuberance and
sheer madness fade away. Indeed, that"thin green line"is all that separates Bull Markets from “irrational
exuberance.” Crossing that same line is how an otherwise normal aggregation of
sporting fans morphs into a full on mob of rampaging soccer hooligans. When the unthinking, instinctual part of the brain takes over – the ancient lizard
brain – speculative excesses often occur.

The trick is in identifying what data to use and what to discard. I have
long counseled against overweighting
anecdotal evidence versus actual data; It is too easy to simply filter
everything through your own rose or cloud covered glasses.

I ifnd that anecdotal
evidence has a very specific purpose: when it implies excess speculation, it should send you out hunting for specific quantitative sentiment data (which we detailed lots of specifics
about here).

>

With those caveats in place, consider these peculiar anecdotal examples of
sentiment run amuck: Prices of Jim Cramer’s Mad Money tchotckes on eBay.

The auction giant eBay has become legendary for all sorts of odd items being bought and sold. Recall the Vintage Stock Market Machine Predictor Computer we found last April.

Now, the trading of these items are not what’s at issue. What raises a red flag now are some of the eye opening prices that these otherwise modest giveaway items are fetching:

>

Jim Cramer Talking Bobbleheads:

Bidding: over $127 (see here and here)Prior winning auctions of Talking Bobble Heads went as high as $255 and $212.50.

The Winning bid for just the head — the head!– of a bull was $26.00; The narrative is priceless:

"STRAIGHT FROM THE CNBC STUDIOS, JIM CRAMER’S MAD MONEY SHOW OFFICIAL FOAM BULL. IN ONE OF HIS PASSIONATE MOMENTS, JIM CRAMER BIT OFF THE LEGS, HORNS, TAIL AND THREW THIS BULL INTO THE AUDIENCE AND I CAUGHT IT. THIS A MUST HAVE FOR ANY FAN OF WALL STREET OR JIM CRAMER."

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “Thin Green Line”

barry, they keep saying that companies are beating 4Q estimates, and completely aside from downbeat guidance for ’06, my question is this: who cares about the # of them beating est when the NAME BRAND, BIG CAP names are the ones who are doing the missing??

I like to use anecdotal indicators when the speculative juices are high. ie, p/c, surveys, etc. But, those tend to be dicey if used alone. And, sentiment can get more overbought or more oversold and stay there for a long time. Per your comments, the bulls were out in force all of 2003 and if you used sentiment to bet against them, you were a fool because they danced on the bear’s heads all year long. I think alot of this generally available stuff waxes and wanes as more people use it.

I use a proprietary indicator similar to Cook’s Cumulative Tick that shows exhuberance is stupidly high. It’s been at this level two times in the last six years. December of 04 and three months before the bubble top when it started cratering. During 2003, it never got oversold even though the NAZ 100 was up 80%ish? ie, The rise was orderly unlike today. We may yet go to new highs of substantial percentages in 06 but I think the odds are remote it will be before a correction of some sorts. Hence my two correction in 06 scenario.

I think so many Wall Streeters love Jim Cramer because they are angry megalomaniacal blowhards….the quintessential “guy guy”……just like Jim Cramer. Not unlike many talk radio listeners and hosts, in style if not in politics.

Much like politicians manage to rope in the naive….”hey, that so-and-so….he’s kind of a regular guy, unlike the other ones…..I’ll vote for him.”

I call this trading strategy arrogance arbitrage. Tivo Mad Money. Buy whatever he talks about right before the rerun airs. Plenty of knuckleheads will run to their computers hoping to get in early. You on the other hand will know what the “future” holds.

Cramer does NOT move widely traded stocks. He may move thinly traded stocks that the Cramerite retards can bounce but many times smart traders will fade his recommendations as buying pressure dries up soon after that initial bounce.

The retards are surely out in force. And they all watch Mad Money. Cramer was a fund manager when any and every goof made money. You threw darts and the picks went up 100%. Could he do it now? I’d seriously question if he could.

That said, he’s never shy about telling you how good he is…………Nothing wrong with a little bit of a healthy ego. But, his is huge and I’m not sure it’s grounded in reality. Nor are his comments about making bazillions of money in his hedge fund. From what I’ve seen, he underperformed the markets when he ran his hedge fund……………. May have made alot of money but if you underperformed the biggest blow off bubble in history, that doesn’t really say much does it?

And, there was a site http://www.booyahboyaudit.net that followed his Mad Money recommendations and they were right about 50% of the time. Coin flipping investment methodology. That site is down today and I haven’t been there in months so maybe they were legally forced to shut the site down………That in itself would be telling.

Anyone who poo-poos the work of quants ain’t too swift in my book anyway. Even his old stomping grounds, Goldman, makes monstrous loads trading using what he says doesn’t work or is voo doo.

Barry,
You have problems with the contraction “It’s,” which of course compacts “It is.” E.g.: Its only when they become over-stimulated … As you learned in third grade, before you had a clue about stochastics, “Its” is a possessive pronoun, apostrophe free.
Love your blog,
jcf

Jim cramer is an idiot. He made money when everyone made money. He thinks he is smarter. Hes got the hero syndrome going where he is helping the poor guy. (and not getting paid for it i might add!) A total joke. He has recommended to the nines, google, toyota, first solar, petro china that all went for a dump. Then he tells everyone to sell it and it goes for another dump. You can only wonder how someone like that can have a personal life or even a conscience. He should go into acting (over acting)

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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